Banks falling behind schedule for secure ATM cards switch

A large fraction of bank customers face the risk of remaining in the high ATM and credit card fraud zone in the next couple of months with the lenders unlikely to meet the March 31 deadline for migration to the more secure chip-based cards.

The Business Daily on Tuesday found that only about 40 per cent of the estimated 11.5 million card users had been issued with the new cards barely 12 days to the deadline.

This means the majority will continue to use the magnetic stripe cards that have been blamed for rampant fraud in Kenya’s vibrant financial services market.   

The Kenya Bankers Association (KBA), the industry’s lobby, agreed that there was a risk to the entire banking system should some banks fail to migrate to the Europay MasterCard Visa (EMV) platform on time.

“There is a risk posed to the whole system if all banks are not up to scratch,” KBA chief executive Habil Olaka told the Business Daily.

Mr Olaka, however, said that the industry had yet to take a stand on how to deal with the laggards since the deadline has not elapsed.

Rampant fraud in Kenya’s banking system has been attributed to use of magnetic cards that can be easily cloned and the industry is yet to decide who will pay for losses arising from fraudulent transactions made possible by non-compliance.

“Liability is ordinarily on the bank that has not complied,” said Mr Olaka.

Kenyan banks decided in April 2013 to abandon magnetic cards, which are more prone to fraudulent transactions in favour of EMV cards. KBA members agreed to make the switchover in three phases beginning with the ATMs.

READ: Banks adopt new technology solutions to tackle rising cases of ATM card fraud

All ATMs were to become EMV compliant by September 30, 2013, according to the plan. Point of Sale (POS) terminals were to follow with a completion date of December 31, 2013.

Card migration made the last phase of the switchover that is to be completed by end of this month.

Banks are required to issue their customers with new chip technology cards and migrate them to the new system, completing the switchover.

KBA confirmed that all banks have successfully completed the first two phases of the migration but did not have solid information on how far each had come to getting rid of the magnetic cards.

“We are in the process of finding out how prepared they are,” Mr Olaka said.

Some banks were on Tuesday in the process of completing the last phase of the migration as the deadline approaches.

KCB, Kenya’s largest bank by capitalisation and footprint, led the migration effort with an announcement in Tuesday’s newspapers that it was moving its debit cards to the new EMV system.

“To improve our customer experience and provide more security, KCB will be migrating all debit cards to the new EMV platform on Tuesday March 18, 2014 from 10:00pm to 11:59 pm,” the bank said in an advert.

KCB had 2.5 million customers and 877 ATMs at the end of 2013. The bank started production of the new EMV cards at the beginning of the year and was said to be pressing for completion ahead of the March 31 deadline.

Equity Bank, the largest bank by customer base with 8.4 million accounts, began moving its customers in December 2013 with the issuance of MasterCard-linked EMV debit and credit cards.

Both banks have contracted MasterCard to supply them with the chip-based cards.

Family Bank, Paramount Bank, Ecobank and Prime Bank make the list of banks that have signed deals with Visa and MasterCard to supply their customers with EMV cards.

READ: MasterCard cuts Visa’s stake with Equity, KCB deals

Retailer Nakumatt also struck a deal with MasterCard to supply its customers with EMV cards.

The Central Bank of Kenya’s data shows that there are 11.5 million cards in circulation made up of 9.54 million debit cards, 1.71 million ATM cards, 148,612 credit cards, 73,395 prepaid cards and 750 charge cards.

There were 21,089 POS machines and 2,487 ATMs by December 31, 2013.

Banks were to make the final transition by the end of this month to avoid inconveniencing their customers during Christmas holiday when cards are used the most.

The holiday season is also when banks are most vulnerable to fraudulent transactions.

Standard Chartered asked customers to change their personal information numbers (PINs) during the festive season of 2012 as a cautionary measure after consumers reported a wave of fraudulent transactions across the industry.

A number of Kenyan banks were hit by fraudsters during the festivities. Banks estimate it will cost them Sh2.5 billion to fully migrate to the new platforms.

A 2013 report by consultancy firm Delloite estimates that Kenyan banks lost close Sh3.8 billion through fraudulent transactions but warned that the losses could be more because not all fraud cases are reported to safeguard the reputations of the institutions.

Lenders have also introduced SMS and e-mail alerts to keep customers informed of any transactions in their accounts.